Panel Decision in Relation to Colonial First State Property Trust Group [12/09/2002] The Takeovers Panel

12 September 2002

PANEL DECISION IN RELATION TO COLONIAL FIRST STATE PROPERTY TRUST GROUP

The Panel advises that it has today accepted undertakings in relation to the proposal (Merger Proposal) for the merger of Colonial First State Property Trust Group (Colonial Funds) with the Commonwealth Property Office Fund (Commonwealth Fund) and the Gandel Retail Trust (Gandel Fund). On the basis of the undertakings the Panel has decided not to make a declaration of unacceptable circumstances in response to applications by Mirvac Funds Ltd. (Mirvac) as the responsible entity for Mirvac Property Trust (Mirvac Fund) made on 29 August and 2 September 2002.

The Panel received submissions from ASIC and the responsible entities of the funds.

The Panel received undertakings from:

a. CFS Managed Property Ltd. (CFS) the Responsible Entity for the Colonial Fund; and

b. those associates of both Commonwealth Bank of Australia (CBA), and the Gandel Group of companies, which are unitholders in the Colonial Funds and which owe either statutory or fiduciary duties to the persons on whose behalf they hold or control the units (Associated Unitholders).

The undertakings from CFS relate to disclosure issues in the notice of meeting for the meetings proposed to be held in the Colonial Funds to consider the Merger Proposal (Meetings).

The undertakings from the Associated Unitholders affirm their obligations to act in the best interests of the persons on whose behalf they hold or control the units, given the potential for conflict of interest that the related nature of the various fund management entities in the Merger Proposal generates.

One associate of the Gandel Group is a small unitholder in one of the Colonial Funds. It has undertaken not to vote at the Meetings.

MECHANISM

The Panel does not accept the proposition put forward by Mirvac that the Merger Proposal (of the Colonial Funds with the Commonwealth and Gandel Funds) should not proceed by way of resolutions under section 601GC and Item 7 of section 611 of the Corporations Act. It also advises that it considers that the Merger Proposal as formulated had deficiencies, which have been dealt with by the undertakings.

DISCLOSURE

The Panel considers that there are some material deficiencies in the explanatory statement accompanying the notice of meeting (Explanatory Statement) which was sent to the unitholders in the Colonial Funds. Accordingly, the Panel invited CFS to undertake to send a supplementary notice to unitholders in the Colonial Funds setting out, as a minimum, the following issues:

1. Full disclosure of the relationship to CBA and the Gandel Group of the Associated Unitholders (to the extent known by CFS);

2. A statement concerning the undertakings made by the Associated Unitholders referred to above;

3. A statement clarifying the effect of the liability disclaimers made in the Explanatory Statement dated 30 July 2002, and disclosing clearly that such purported disclaimers do not reduce any statutory liability imposed under the Corporations Act in relation to misleading and deceptive conduct, and clearly explaining the limit of the effect of the disclaimers;

4. The effects on the amount of management fees that are likely to be payable to the Responsible Entity of the Commonwealth Fund and Gandel Fund in the event that the Merger Proposal is approved, and the relationship of the Commonwealth and Colonial Responsible Entities with each other and with CBA. CFS has undertaken to do this by providing examples based on the new fees and how they would have applied for the year ending 30 June 2002 if the funds had been merged throughout that year; and

5. A full explanation of the effect of all changes to the fees and charges of the Responsible Entities of the two ongoing trusts if the Merger Proposal proceeds, taking into account all changes announced on or before the date of the supplementary notice.

Directors' Recommendation

The Panel considers that the directors of CFS (Colonial Directors) should provide an updated recommendation in the supplementary material which the Panel has required CFS to provide to unitholders in the Colonial Funds, similar to the recommendations and reasons which would have had to have been given by the Colonial Directors if the Merger Proposal had been undertaken by way of a takeover bid. The Panel also considers that the Colonial Directors should provide their reasons for such recommendation. CFS has undertaken to do so.

Sending the Information

CFS has undertaken to post the additional information to unitholders in the Colonial Funds at least ten days before the date of the Meetings. It has also undertaken to give a copy of the additional disclosures, in paragraphs 1 to 5 above, to Mirvac at least 12 hours before printing.

BDO Report

Mirvac requested that the Colonial Directors instruct BDO Corporate Finance P/L (BDO) to provide a fully revised report to the Colonial Fund unitholders on the fairness and reasonableness of the Merger Proposal. It submitted that this was necessary in light of the takeover offer for the Colonial Funds announced by Mirvac and the subsequent variations to both the Merger Proposal and the Mirvac bid. Mirvac noted that thus far BDO has only been instructed by the Colonial Directors to prepare a restricted review of its conclusion and opinion.

The Panel does not consider it appropriate to require the Colonial Directors to instruct BDO in this way. The Panel considers that it is currently fully within the discretion of the Colonial Directors to choose whether or not to do so.

The Colonial Directors, in their initial recommendation stated that their recommendation was supported by the conclusions of BDO. The weight which the Colonial Directors will be able to place on BDO's conclusion in any future recommendation to unitholders in the Colonial Funds will clearly depend on the currency and breadth of any then existing report by BDO. On that basis, the Colonial Directors should not make any recommendation that is stronger than the then currently updated report would allow, if they wish to base or support their recommendation on that independent report.

PROXIES

Mirvac requested that all proxies for the Meetings should be determined to be invalid because of the passage of time and volume of new information since they were lodged. The Panel does not accept this.

However, the Panel considers that CFS should, in its supplementary notice of meeting, provide fresh proxy forms to all unitholders in the Colonial Funds. CFS has also undertaken to advise unitholders who have already lodged proxies that they should consider their proxies in light of the supplementary disclosure, and that lodging a fresh proxy will automatically revoke any earlier proxy, and that attending the Meetings will suspend the authority of a proxy to speak and vote for that unitholder.

VOTING

The Panel considers that Associated Unitholders should not be excluded from voting (or from having their votes taken into account) where those associates have a fiduciary duty to persons other than the CBA or the Gandel Group of companies. Their voting is subject to the requirement in section 253E of the Act that any person who is an associate of the Responsible Entity and has an interest other than as a unitholder may not vote. The Associated Unitholders have given the required undertakings.

The Panel will also require a record of the voting on the resolutions to be kept and a summary of that record to be included in the notice of resolution lodged with ASIC.

PROCESS

The Panel came to its preliminary decision on Friday 6 September and advised the parties that evening. At that time it offered the parties an opportunity to resolve the issues by way of providing undertakings to the Panel. The last of these undertakings was provided this morning.

The Panel has encouraged any steps which CFS might take to arrange the timing and distribution of the additional material to unitholders in the Colonial Funds in a way that assists them to deal with the large volume of information that they will be receiving from CFS, and from the Commonwealth, Gandel and Mirvac funds.

FUTURE POLICY / PRECEDENT VALUE OF THIS DECISION

The Panel notes that the issues raised in this application go to some fundamental questions as to the mechanism of mergers of Managed Investment Schemes by "Schemes of Arrangement". The Panel considers that these issues should be considered in a broader context than simply the facts of this application, and that the process of consideration should be open to public consultation. Accordingly, it will forward these issues to a joint working group from ASIC and the Panel to develop appropriate policy in this area. That public policy process, combined with the special facts of this matter, will very likely limit the value of this decision as precedent.

The sitting Panel for the application is Professor Ian Ramsay (sitting President), Karen Wood (sitting Deputy President) and Jennifer Seabrook.

Nigel Morris
Director, Takeovers Panel
Level 47 Nauru House
80 Collins Street
Melbourne VIC 3000
Ph: +61 3 9655 3501
nigel.morris@takeovers.gov.au